Exclusive: Guggenheim advises on Hulu sale, may also bid - sources

LOS ANGELES | By Ronald Grover

Alan Schwartz, executive chairman of Guggenheim Partners, takes part in a panel discussion titled ''The Entertainment Industry: A Billion Ideas in Search of an Audience'' at the Milken Institute Global Conference in Beverly Hills, California in this May 2, 2012 file photo.

Reuters/Danny Moloshok/Files

LOS ANGELES Hulu has hired Guggenheim Partners to advise on a sale of the company, even as the financial services firm is considering making its own bid for the video streaming service, three sources with knowledge of the matter told Reuters.

Guggenheim Executive Chairman Alan Schwartz was first hired by Hulu in 2011 to advise on a sale, but its owners were unable to find a buyer willing to pay the $2 billion that the company's owners wanted.

Hulu, jointly controlled by Disney's ABC and News Corp's Fox network, has re-engaged Guggenheim to handle another sale attempt, according to the sources, who spoke on condition of anonymity because the ongoing auction process is private.

Guggenheim is a New York-based investment firm with a fast-growing media business. A spokesman for the firm, Terry Fahn, declined to comment, as did Hulu spokeswoman Elisa Schreiber, Fox spokesman Dan Berger and Disney spokeswoman Zenia Mucha.

Securities experts say financial services firms are increasingly both advising on and participating in deals as they become larger and expand into more areas. While permitted under securities regulations, some corporate governance experts have raised questions about conflicts of interest.

Guggenheim has established "a Chinese wall" between its investment banking and asset management businesses, said one of the sources.

Another source said Guggenheim has taken steps to keep the situation "transparent" and it is up to Hulu to decide whether to retain the financial services firm if it makes an offer for the company.

"It's a definite conflict of interest," said Ehud Kamar, a professor at USC's Gould School of Law who specializes in securities law and is an expert on mergers and acquisitions.

"As financial firms get bigger and bigger, there is a greater likelihood that this will happen," he said.

Other banks that have been on both sides of a deal include Goldman Sachs & Co, which was not paid a $20 million fee it billed for advising El Paso Corp on its sale to Kinder Morgan Inc. El Paso shareholders had sued Kinder Morgan, alleging that the sale was tainted by Goldman's stake in the acquirer.

Kinder Morgan settled the suit for $110 million. The judge, Delaware Chancery Court Judge Leo Strine, described Goldman Sachs' behavior as "furtive" and "troubling" though he also told lawyers for the El Paso shareholders that they may have a tough time holding the bank liable for its actions. Goldman has declined to comment on the matter.

POSSIBLE BIDDER

Guggenheim, which says on its website that it manages more than $170 billion in assets, created a separate Guggenheim Digital Media unit in January and put former Yahoo Inc and News Corp executive Ross Levinsohn in charge.

Levinsohn has been studying a bid for Hulu, according to the three sources.

Reuters previously reported that Hulu had reached out to potential buyers in March after initially contemplating a deal in which Disney and News Corp might buy the other out. It is not clear whether that transaction is still being considered. A third investor in Hulu, NBC parent Comcast Corp, has given up control as a condition of buying NBC Universal.

Former News Corp President Peter Chernin, a one-time Hulu board member and one of its architects, has bid around $500 million for Hulu and offered to assume its $330 million in debt, sources told Reuters in April. A spokesman for Chernin had no comment on Guggenheim's role.

Hulu says on its website that it has more than 3 million subscribers paying $7.99 a month for its premium service, and that it generated revenues of around $700 million last year. It sells advertising for its free service.

Guggenheim recently headed a group that spent $2.15 billion last year to buy the Los Angeles Dodgers baseball team. Its media investments include Billboard, Adweek, The Hollywood Reporter and Dick Clark Productions.